Marine Subsea Annual accounts

Transcription

1 Marine Subsea Annual accounts

2 Board of Directors Report Marine Subsea is an oil service company focused on the West African offshore sector. After exiting the Subsea Construction & Well Intervention business, the Group has activities in Offshore Accommodation, Chartering & Logistics. After the sale of the multipurpose intervention vessels MV Sarah and MV Karianne, Marine Subsea has a fleet of five conventionally moored offshore accommodation barges and an interest in one accommodation semi under construction. Marine Subsea AS has its head office at Lysaker in Norway. In addition to corporate head office functions such as finance and accounting, the Norwegian organisation provides commercial and technical services to the company s subsidiaries. The company also has management functions in Cyprus and a local organisation in Luanda, offering fleet management and support services Financial Highlights For 2010, Marine Subsea reported an EBITDA of USD 35,5 million on revenues of USD 121,2 million. The Group recorded a net operating loss of USD 17,3 million after impairment charges of USD 47,9 million, mainly related to the barges and the investment in Interoil Angola. Loss from discontinued operations amounted to USD -222,7 million, and net loss after tax was USD 322,6 million for the full year. Net financial costs from continuing operations amounted to USD 75,9 million, of which USD 37,8 million relates to the write-down on the African Challenger. Marine Subsea s total assets as of 31 December 2010 amounted to USD 357,5 million, of which USD 210,2 million relates to discontinuing operations. Total cash and cash equivalents were USD 22,3 million. As of 31 December, the Group had a high net trade payable position of USD 15 million (trade receivables were USD 18,0 million and trade payables were 33,0 million). Total liabilities stood at USD 637,8 million and shareholders equity was negative at USD 280,3 million. Due to the ongoing default status, all interest-bearing debt (USD 589 million) has been classified as current as of 31 December Interest-bearing debt includes USD 124,6 million to the Sarah bank financers, USD 86,9 million to the Ulstein Verft, USD 352,2 in bond debt including accrued interest, USD 17 million to Jaya and USD 8,3 to Leung Kee Holdings Ltd. The maturity date on the USD 17 million outstanding to Jaya on the African Worker was May 31. Jaya has stated that it has initiated a sales process of the African Worker barge. Going Concern Issues The annual accounts are prepared under the assumption that Marine Subsea AS will continue as a going concern (which assumes an agreement with the main creditors). However, there are significant risks to this assumption, and Marine Subsea AS could be forced into liquidation during The board must stress that the company is currently insolvent and that the main objectives of the board is to secure the highest possible return for its creditors. In this situation the company has an obligation to treat all creditors equally and the company has therefore implemented (i) a suspension of payment to all overdue creditors, (ii) only procuring goods and services which are necessary and required in order for the company to continue its business operations, and (iii) a cash basis payment principle. The cash flow generated by the Offshore Accommodation, Chartering and Logistics business unit is sufficient to secure the continued procurement of all goods and services required for continued operations. The board will continue to monitor the financial situation of the company and the board intends to convene a shareholders meeting in accordance with the provisions of the private limited companies act

3 Health Safety, Environment and Quality Marine Subsea has high focus on Health, Safety, Environment and Quality (HSEQ) including Security. It is our belief that all accidents are avoidable and no harm to environment and any harm to or loss of assets is achievable. This is one of our core values. The company has implemented a corporate HSEQ program, the Integrated Management System, based in the international standards, ISO 9001:2000, ISO 14001:2004, OHSAS 18001:1999 and the ISM and ISPS codes. Focus areas are to bridge the Marine Subsea systems and values with the same of our vessel/barge managers. This activity is outsourced. This is supported by focus on improved reporting and investigations of incidents and non-conformances for continuously improving our activities, and increased awareness throughout the group in HSEQ matters in general. A waste management program is introduced. An important issue is also to manage HSEQ data and follow-ups globally. Marine Subsea had no accidents during the year. The working environment is considered to be good. Marine Subsea AS had 1,43% sick leave in 2010, compared to 0,53% in 2009 The company operates vessels/barges with emission to air, but they are all new with the latest technology installed. There are no other additional emissions or accidental releases to report. Equal opportunities Marine Subsea policy is full equality and opportunities between men and women. The company bases remuneration on education/training, experience and performance. The company had 9 employees at year end, 3 woman and 6 men. In total the Group has 29 employees. Discrimination Marine Subsea policy is to promote gender equality, ensure equal opportunities and rights, and to prevent discrimination due to ethnicity, national origin, descent, skin colour, language, religion and faith. The Group s aim is to be a workplace with no discrimination due to reduced functional ability and is working actively to design and implement the physical conditions in such a manner that as many as possible can utilise the various functions. Allocation of net loss The Board of Directors has proposed the net loss of Marine Subsea AS to be attributed to: Uncovered loss USD 64,0 Oslo, 9 June 2011 Mårten Rød Gian Angelo Perrucci Kristen Jakobsen Chairman Board Member Board Member & Managing Director 3

4 Marine Subsea Consolidated statement of comprehensive income Notes (All amounts in USD if not otherwise stated) Restated * Sales 6, Total revenue Cost of sales Impairment capitalised costs Employee benefit expenses Other operating expenses Impairment goodwill and vessels 13, Depreciation and amortisation 12, Total operating expenses Net operating profit (loss) Share of loss from equity accounted investments Financial income Financial expenses Net financial income (loss) Net profit (loss) before income tax from continuing operations Income tax expenses Net profit (loss) from continuing operations Profit (loss) from discontinuing operations Net profit Exchange differences on translating foreign operations Total comprehensive income for the period Net profit (loss) from continuing operations attributable to: Equity holders of the company Non-controlling interest Basic and diluted earnings per share for continuing operations 28-1,47-0,55 Basic and diluted earnings per share for discontinuing operations 32-3,27-0,07 Net profit attributable to: Equity holders of the company Non-controlling interest * Certain amounts shown here do not correspond to the 2009 financial statement and reflect adjustments made as detailed in note 32 4

5 Marine Subsea Consolidated Statement of Financial Position Notes As of 31 December As of 31 December (All amounts in USD if not otherwise stated) ASSETS Non-current assets Property, plant and equipment Intangible assets Equity accounted investments Non-current receivables Total non-current assets Current assets Inventories 0 9 Trade and other receivables Cash and cash equivalents Total current assets Assets classified as held for sale TOTAL ASSETS EQUITY AND LIABILITIES Shareholders' equity Share capital Share premium Other reserves Retained earnings Total shareholders equity Non-controlling interest Total Equity Non current liabilities Interest bearing-debt Deferred tax liabilities Retirement benefit obligation Non-current liabilities Total non current liabilities Current liabilities Interest bearing-debt Provisions Trade and other payables Income tax liabilities Total current liabilities Liabilities directly assosiated with the assets classifed as held for sale TOTAL EQUITY AND LIABILITIES Lysaker, 9 June 2011 Mårten Rød Kristen Jakobsen Gian Angelo Perrucci Chairman Managing Director and Board Member Board Member 5

6 Marine Subsea Consolidated statement of changes in equity IFRS Non - Share Share Paid in Retained controlling (All amounts in USD if not otherwise stated) capital premium capital earnings Total interest Total Balance at 1 January Total comprehensive income for the period Acquisition of subsidary Balance at 31 December Total comprehensive income for the period Balance at 31 December

7 Marine Subsea Consolidated statement of cash flow Year ended 31 December restated * Amounts in USD Note Cash generated from operations Net profit (loss) before income tax from continuing operations Profit (loss) before tax from discontinuing operations Depreciation and amortisation 12, Impairment 7,13, Share of loss from equity accounted investments Financial income Financial cost exclusive impairment Amortisation of debt issue cost Taxes paid Interest received Changes in assets and liabilities Trade and other receivables Trade and other payables Net cash flow from operating activities Cash flow from investing activities Investment in property, plant and equipment 12, Net cash flow from investing activities Cash flow from financing activities Interest paid Proceeds from borrowings Repayments of borrowings Net cash flows from financing activities Cash and cash equivalents at 1 January Exchange (losses)/gains on cash and cash equivalents Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 31 December Of which is related to discontinued operations Cash and cash equivalents continuing operations at 31 December Of which is restricted * Certain amounts shown here do not correspond to the 2009 financial statement Adjustments reflect financial income and cost split into several lines 7

8 (All amounts in USD if not otherwise stated) 1 General information Marine Subsea is an oil service company focused on the West African Offshore sector. After exiting the Subsea Construction & Well Intervention business, the Group has activities in Offshore Accommodation, and Chartering & Logistics. After the sale of the multipurpose intervention vessels MV Sarah and MV Karianne, Marine Subsea will have a fleet of five offshore support barges and an interest in one accommodation semi under construction. Marine Subsea AS (Company) was incepted on 9 October The vessel owning entities are owned 100% by the Company, except Marine Subsea Sarah Ltd, Marine Subsea Karianne Ltd and Marine Subsea Lifter Ltd, which are owned 75%, and Marine Subsea & Consfe Ltd which is owned 40%. The company is a limited liability company incorporated and domiciled in Norway. The address of its registered office is Strandveien 50, 1366 Lysaker. The consolidated financial statements were authorised for issue by the board of directors on 9 June Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented. Due to significant losses and the debt being short term, it should be noted that there are uncertainty regarding the going concern assumption. 2.1 Basis of preparation The consolidated financial statements of Marine Subsea AS have been prepared in accordance with International Financial Reporting Standards as adopted by EU. The consolidated financial statements have been prepared under the historical cost convention, except certain financial assets and financial liabilities (including derivative instruments) that are recogniced at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2010: IFRS 3R Business Combinations and las 27R Consolidated and Separate Financial Statements (effective from 1 July IFRS 3R introduces a number of changes in the accounting for business combinations occurring after this date that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. las 27R requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments were made to las 7 statement of Cash Flows, las 12 Income Taxes, las 21 The Effects of Changes in Foreign Exchange Rates, las 28 Investment in Associates and las 31 Interests in Joint Ventures. The changes by IFRS 3R and las 27R will affect future acquisitions or loss of control and transactions with minority interests. IAS 32 Financial Instruments: Presentation and las 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective from 1 February 2010). The revisions provide a limited scope exception for puttable instruments to be classified as equity if they fulfil a number of specified features. The amendments to the standards will have no impact on the financial position or performance of the Group, as the Group has not issued such instruments. IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items (effective from 1 July 2009). The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item. The Group has concluded that the amendment will have no impact on the financial position or performance of the Group, as the Group has not entered into any such hedges. IAS 27 (revised) Consolidated and Separate Financial Statements : The revised IAS 27 provides more guidance on accounting for changes in ownership interest in a subsidiary and the disposal of a subsidiary, compared to the current IAS 27. According to the revised standard the entity measures the interest retained in a former subsidiary at fair value upon loss of control of the subsidiary, and the corresponding gain or loss is recognised through profit and loss. The revised standard also includes a change in the requirements relating to the allocation of losses in a loss-making subsidiary. IAS 27 (R) requires total comprehensive income to be allocated between the controlling and the non-controlling party, even if this results in the non-controlling interest having a deficit balance. IAS 27 (R) is effective for annual periods beginning on or after 1 July The Group has implemented IAS 27 (R) as of 1 January

9 2.2 Basis of Consolidation (a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Accounting policies of subsidiaries are consistent with the policies adopted by the group. (b) Transactions and non-controlling interests The group applies a policy of treating transactions and non-controlling interests as transactions with parties external to the group. Disposals to non-controlling interests result in gains and losses for the group that are recorded in the income statement. (c) Joint Ventures The group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. Investments in joint ventures are accounted for using the equity method of accounting and are initially recognised at cost. Unrealised gains on transactions between the group and its joint ventures are eliminated to the extent of the group s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures are consistent with the policies adopted by the group. Dilution gains and losses arising in investments in joint ventures are recognised in the income statement. 2.3 Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses that related to transactions with any of the Group 's other components. All operating segments' operating results are reviewed regularly by the Group's management to make decisions about resources to be allocated to the segment and assess its performance, and for which descrete financial information is available. 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in USD. This is also the functional currency of all the significant subsidiaries in the Group. (b) Transactions and balances All transactions in currencies other than USD are included in the financial statements at exchange rate on the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 2.5 Vessels, rig and other equipment Vessels, rig and other equipment comprise mainly of multipurpose/intervention vessels, work accommodation barge vessels and semi submersiable. All vessels, rig and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the period in which they are incurred. Dry-docking expenses are capitalised as incurred and depreciated over the estimated useful life of the asset, i.e. until the next dry-docking. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the period in which they are incurred. Depreciation on assets is calculated using the straight-line method to allocate their cost less residual values over their estimated useful lives. Borrowing cost directly attributable to the aqusition or construction of a qualifying asset is capitalized as part of the cost of that asset. (note 2.20) The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (note 2.6). Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within Other (losses)/gains net in the income statement. 9

10 2.6 Impairment of non-financial assets Goodwill and assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). These groups can not be on a higher level than the operating segments are divided into. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.7 Financial assets The group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-forsale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Financial assets at fair value through profit or loss Derivatives are categorised as held for trading unless they are designated as hedges. The Group has not designated any financial assets upon inital recognition as fair value through profit or loss. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The group s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet (note 2.10 and 2.11). (c) Financial assets available for sale All other financial assets, not included in the above mentioned groups 2.8 Financial liabilities The group classifies its financial liabilities in the following categories: at financial liabilities at fair value through profit or loss, loans and borrowings, or as derivates designated as hedging instruments in an effective hedge, as approperiate. Management determines the classification of its financial assets at initial recognition. All financial liabilities are recogniced initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. (a) Financial liabilities at fair value through profit or loss Financial liabilities are categorised as held for trading if they are acquired for the purpose of selling in the near term. The category includes derivative financial instruments unless they are designated as hedges. (b) Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process (note 2.14) (c) Derivate financial instruments and hedge accounting Derivative financial instruments such as forward currency contracts, interest rate swaps and forward commodity contracts are initially recogniced at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Hedges are classified as fair value when hedging the exposure to changes in fair value. Hedges are classified as cash flow hedges when hedging exposure to variability in cash flows or as hedges of a net investment in a foregn operation The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. None of the Groups derivative instruments do qualify for hedge accounting. The groups derivates consist of an early redemption right regarding borrowings. Changes in the fair value of this derivative instrument is recognised immediately in the income statement within financial income or expense 10

11 2.9 Inventories Inventories are stated at cost. Cost is determined using the first-in, first-out (FIFO) method. Inventories comprise principally fuel and lubricating oils Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within other operating expenses'. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative expense in the income statement Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the company s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company s equity holders Trade payables Trade payables are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders equity, net of income tax effects. Early redemption rights regarding borrowings are recognised at fair value at the date of issuance of the loan. Fair value fluctuations are recognised as a financial income/expense. For convertible bond financing that is issued with a currency other than the groups functional currency, the convertible element is recognised at fair value as liability component based on a valuation model. When the group has an early redemption right regarding convertible bond financing, the convertible element is fair valued by taking this early redemption right into consideration. The remainder of the proceeds is allocated to the liability component of the bond. The convertible element is recognised at fair value at period end and fair value fluctuations are recognised through statement of profit and loss. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 11

12 2.15 Current and deferred income tax The current income tax charge is calculated on the basis of the tax laws and rates enacted or substantively enacted at the balance sheet date in the countries where the company s subsidiaries and joint venture operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable taxation authority. Marine Subsea AS is subject to 28 % Norwegian company tax. Any gain/loss or dividend on shares from companies within the EEA, and companies outside the EEA where the Company has an ownership of 10% or more and the country is not a low tax country, is taxed according to the excemption model. Subsidiaries outside of Norway are governed by the tax laws and tax rates in the local jurisdiction. Interoil Angola is subject to 35 % income tax. Cyprus companies are subject to 10% income tax. Cyprus companies owing or chartering barges or vessels are exempt from income tax. These companies are under the tonnage tax regime. Tonnage tax is payed based on the net tonnage on the ships they own or charter Employee benefits (a) Pension obligations Marine Subsea operates on pension scheme. The scheme is generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The scheme is a defined benefit plan. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees expected average remaining working lives. (b) Share-based compensation Total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The option forefeited in August The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised Provisions Provisions for legal claims and other are recognised when: the group has a present legal or constructive obligation as a result of past events; it 12

13 Provisions for legal claims and other are recognised when: the group has a present legal or constructive obligation as a result of past events; it is more probable than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Onerous contracts Provision for loss-making contracts are recognised when the expenses of fulfilling duties under the contract exceed the economic benefits received under the contract. Before a provision for a loss-making contract is determined, any losses on assets related to the contract are recognised. Provisions for onerous TC-hire contracts are made for the net present value of any future TC expenses exceeding future earnings allocated the vessel from the pool's operation. The estimates and assumptions applied in the calculation of the provision are the same as the ones used to assess impairment of vessels Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the group. The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the group s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (a) Time Charter revenues Time charter revenues are recognized over the term of the charter as a service is provided and when the general revenue recognition criteria described above have been fulfilled. The fair value of the lease element of the contract is recognised on a straight line basis over the lease term. Certain contracts include mobilisation fees payable at the start of the contract. In cases where the fee covers specific upgrades or equipment specific to the contract, the mobilisation fees are recognised as revenue over the estimated life of the customer contract period. The related investment is depreciated over the estimated useful life of the contract period. The fair value of the service element of the contract is recognised at the time the service has been rendered. (b) Bareboat Charter revenues The lease element of the contract is recognised on a straight line basis over the lease term Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Financial leases Leases in which the company assumes the better part of the risk and dividend associated with ownership of the asset, are financial leases. At the beginning of the lease, financial leases are entered at a sum equal to market value or the present value of the minimum lease sum, whichever is lower, with accumulated depreciation and write-downs deducted. When calculating the present value of the lease, the implicit interest rate cost in the lease is used, if it can be calculated. If not, the company s marginal loan interest rate is used. Expenses directly connected to the establishment of the lease are included in the cost price of the asset. The depreciation period is the same as for the company s other depreciable assets. If there is no reasonable certainty of the company assuming ownership when the lease expires, the asset is written off over the term of the lease or for the asset s financial service life, whichever is shortest. Operational leases Lease contracts in which the better part of the risk and dividend in associated with ownership of the asset are classified as operational lease contracts. Lease payments are classified as operating costs and entered using the straight line method over the contract period Capitalisation of borrowing cost Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. 13

14 2.21 Assets held for sale and discontinued operations Assets and dispsal groups classified as held for sale are measured at the lower of their carrying amount and fair value less cost to sell. Assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. In the consolidated staement of comprehensive income of the reporting period, and of the compareable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to te level of after taxes. The resulting profit or loss (after taxes) is reported separately in the statement of comprehensive income. Propery, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised Cash flow The cash flow is presented according to the indirect method. 14

15 Note 3 - Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group s accounting periods beginning on or after 1 January 2011 or later periods, but the group has not early adopted them: Amendments to IFRS 7 Financial Instruments - Disclosures The amendment relates to disclosure requirements for financial assets that are derecognized in their entirety, but where the entity has a continuing involvement. The amendments will assist users in understanding the implications of transfers of financial assets and the potential risks that may remain with the transferor. The amended IFRS 7 is effective for annual periods beginning on or after 1 July 2011, but the standard is not yet approved by the EU. The Group expects to implement the amended IFRS 7 as of 1 January IFRS 9 Financial Instruments IFRS 9 replaces the classification and measurement rules in IAS 39 Financial Instruments- Recognition and measurement for financial instruments. According to IFRS 9 financial assets with basic loan features shall be measured at amortised cost, unless one opts to measure these assets at fair value. All other financial assets shall be measured at fair value. The classification and measurement of financial liabilities under IFRS 9 is a continuation from IAS 39, with the exception of financial liabilities designated at fair value through profit or loss (Fair value option), where change in fair value relating to own credit risk shall be separated and shall be presented in other comprehensive income. IFRS 9 is effective for annual periods beginning on or after 1 January 2013, but the standard is not yet approved by the EU. The Group expects to apply IFRS 9 as of 1 January IAS 24 (revised) Related Party Disclosures The revised IAS 24 clarifies and simplifies the definition of a related party, compared to the current IAS 24. The revised standard also provides some relief for government-related entities to disclose details of all transactions with other government-related entities (as well as with the government itself). IAS 24 (R) is effective for annual periods beginning on or after 1 January 2011, but the revised standard is not yet approved by the EU. The Group expects to implement IAS 24 (R) as of 1 January Annual improvements project 2010 The IASB issued amendments to its standards and the related Basis for Conclusions in its annual improvements to IFRSs. The improvement project is an annual project that provides a mechanism for making necessary but non-urgent amendments. The improvements are effective for annual periods beginning on or after 1 July The Group plans to implement the amendments from 1 January IFRS 3Business Combinations: Clarifies that the amendments to IFRS 7, IAS 32 and IAS 39, that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of IFRS 3(R). Introduces a limit on the scope of the measurement choices for components of non-controlling interests. Clarification regarding the requirements of an entity (in a business combination) to account for the replacement of the acquiree s sharebased payment transaction. If the entity replaces the acquiree s awards that expire as a consequence of the business combination, these are recognised as post-combination expenses. IFRS 7 Financial Instruments Disclosures: Emphasises the interaction between quantitative and qualitative disclosures and the nature and extent of risks associated with financial instruments. In addition changes are made to disclosure requirements relating to quantitative information and to credit risk. IAS 1 Presentation of Financial Statements Clarifies that an entity shall present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. IAS 27 Consolidated and Separate Financial Statements: Clarifies that the consequential amendments from IAS 27 made to IAS 21, IAS 28 and IAS 31, apply prospectively for annual periods beginning on or after 1 July 2009 or earlier when IAS 27 is applied early. IAS 34 Interim Financial Reporting Provide guidance to illustrate how to apply disclosure principles in IAS 34 and add disclosure requirements concerning circumstances likely to affect fair values of financial instruments and their classification, transfers of financial instruments between different levels of the fair value hierarchy, changes in classification of financial assets and changes in contingent liabilities and assets. The Group does not expect that implementation of the amendments listed above will have a material effect on the financial statement of the Group on the date of implementation. 15

16 Note 4 - Critical accounting estimates and judgements (a) Income taxes The Group is subject to income taxes in several jurisdictions. Significant judgement is required in determining the Group's provision for income taxes. The Group recognises deferred tax assets if it is probable that sufficient taxable income will be available in the future agains which the temporary differences and unused tax losses can be utilised. (b) Impairment of vessels, vessels under construction and goodwill The Group tests whether vessels, vessels under construction and goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2 The recoverable amounts of cash generating units have been determined based on value-in-use calculations, except for Sarah and Karianne. These calculations require the use of estimates. Impairment tests of barges do not indicate impairment. The Grou has recognised impairment of the two multipurpose vessels Sarah and Karianne. Both vessels are classified as held for sale and impaired t the lower of their carrying amount and fair value less cost to sell. See note 13. The Group has recognised impairment of the goodwill relating to Interoil Angola Lda. A possible sale of 51% of the shares to local citizen indicate uncertainity related to this process and the price that can be obtained, and thus an impairment has been recognized. See note

17 Note 5 - Financial risk management Financial risk factors The Group s activities are exposed to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk) and credit risk (trade receivables and liquidity risk). The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. Risk management is carried out by the Finance Director, together with Senior Management. Market risk Market demand for Marine Subsea s barges and vessels will be driven by, inter alia, global demand for oil prices for crude oil, actions by OPEC, worldwide inventory levels, changes in technology, and the availability and sustainability of competitive fuels. Furthermore market demand for Marine Subsea s barges and vessels could be impacted by the actions of competitors, availability of similar vessels, ability of suppliers and subcontractors to perform on a timely basis or at all under their agreements, political stability and the actions of governments or other in the countries and territorial waters of operations. i) Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. The Group s exposure to the risk of changes in the market interest rates relates to the Group s export credit facilities (Sarah and Karianne loan) with floating interest rate (e.g. 3 months LIBOR). Marine Subsea uses no derivative financial instruments to hedge the above mentioned risk exposures. ii) Foreign exchange risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. The Group operates internationally and is exposed to foreign exchange risk arising from currency fluctuations related to operating expenses, primarily EUR/USD and NOK/USD. The future charter income will, in all material respects, be in USD. The Group s interest expenses arise from USD denominated loans. Marine Subsea uses no derivative financial instruments to hedge the above mentioned risk exposures. iii) Commodity price risk 17